When Does a Cook County Commercial Property Tax Appeal Require an Appraisal?

Commercial property tax appeals can involve very different valuation issues. Some appeals can be supported through property records, recent sales, photographs, comparable properties, income and expense information, or documentation of physical conditions.

Other appeals depend upon assumptions regarding market rent, vacancy, operating expenses, capitalization rates, comparable sales, highest and best use, or other valuation factors. In those circumstances, an independent appraisal can provide substantially stronger market evidence and valuation analysis.

1. Identify the Basis of the Tax Appeal

Before ordering an appraisal, an attorney should determine why the property is believed to be overvalued.

Common issues include:

• Incorrect property characteristics
• Excessive estimated market value
• Recent arm's-length sale
• Comparable sales
• Excessive vacancy
• Below-market rents
• High operating expenses
• Physical deterioration
• Deferred maintenance
• Functional or economic obsolescence
• Unusual lease arrangements
• Highest and best use
• Capitalization rate

3. When an Appraisal May Not Be Necessary

An independent appraisal is not automatically necessary for every commercial property tax appeal.

In some circumstances, the evidence may be sufficiently compelling without commissioning a full appraisal.

Incorrect Property Characteristics

If the Assessor has incorrect information concerning building area, land area, classification, age, condition, or other physical characteristics, the error may be documented through reliable property records and supporting documentation.

Recent Arm's-Length Sale

A recent arm's-length purchase may provide powerful evidence when the transaction occurred reasonably close to the applicable assessment date.

Strong Comparable Sales

Several highly comparable recent transactions may provide sufficient evidence in some circumstances to demonstrate that the Assessor's estimated market value is excessive.

4. When an Independent Appraisal Becomes Important

An appraisal becomes increasingly valuable when the appeal depends upon judgment and valuation analysis rather than readily verifiable facts.

• The requested value is substantially different from the Assessor's value.
• The property is income-producing.
• Vacancy is a significant valuation issue.
• The capitalization rate materially affects the conclusion.
• Comparable sales require substantial adjustment and analysis.
• Highest and best use is disputed.
• The case may proceed to PTAB or litigation.

The Attorney's Brief and the Appraisal Serve Different Purposes

What the Appraisal Added

The attorney's initial analysis identified legitimate valuation concerns, including vacancy, physical deficiencies, operating expenses, market rent, and the capitalization rate.

The independent appraisal then tested those issues against market evidence rather than simply adopting the taxpayer's requested value.

The appraisal independently analyzed:

• Market rent
• Vacancy and collection loss
• Operating expenses
• Net operating income
• Capitalization rates
• Comparable sales
• Comparable-sale adjustments
• Applicable assessment date

The Income Capitalization Approach indicated approximately $1.78 million, while the Sales Comparison Approach produced a similar indication of approximately $1.79 million. The final reconciled opinion of value was approximately $1.785 million.

What Should the Attorney Provide to the Appraiser?

12. PTAB: When the Need for Strong Valuation Evidence Increases

The evidentiary considerations become particularly important when a commercial appeal reaches the Illinois Property Tax Appeal Board.

When fair market value is the basis of an appeal, the taxpayer must establish the requested value by a preponderance of the evidence. PTAB recommends an appraisal for commercial and industrial appeals and identifies an appraisal as generally the best evidence of market value.

An appraisal should contain the data and analysis relied upon by the appraiser rather than simply state an opinion of value.

Does Your Appeal Need an Appraisal?

Before ordering an appraisal, ask these five questions:

Conclusion: When Does a Cook County Commercial Tax Appeal Require an Appraisal?

A formal appraisal is not required for every Cook County commercial property tax appeal.

A recent arm's-length sale, strong comparable sales, documented property characteristics, or other compelling evidence may be sufficient in some cases.

However, when the central issue is market value and the requested value depends upon analysis of market rent, vacancy, expenses, capitalization rates, comparable sales, highest and best use, or other valuation factors, an independent appraisal can provide substantially stronger evidence.

The question attorneys should ask is not: